Results

BToto reported 1QFY14 EPS of 7.4 sen/share came in within expectations, accounting for 22.6% and 23.5% of ours and streets’ full year estimates. Historically, 1QFY14 earnings ranged from 18-28% of full year numbers due to seasonality.

Deviations

None.

Dividends

Declared 1st interim single-tier dividend of 4 sen/share, representing payout of 54% and yield of 1%. Dividends declared was disappointing (vs. official policy of 75% and out projection of 90%) but we are maintaining our total dividend estimates of 28.7 sen/share for now.

The ex- and payment date have been set on 3 Oct and 17 Oct 2013 respectively.

Highlights

Revenue: Group revenue fell marginally yoy by 1.4% due to the decline in lotto games, games under 4D, 5D and 6D, and lower rental income from Berjaya Philippines Inc, mitigated by strong growth recorded by International Lottery Totalizator Systems Inc. Qoq, decline in revenue was largely due to the traditionally higher Chinese New Year sales which fell on 4QFY13, as well as lesser draw day in 1QFY14 of 44 days vs. 45 days in 4QFY13.

Earnings: Yoy earnings fell 11.8% due to several reasons 1) additional RM18.6m gain in quoted and unquoted investment in 1QFY13 and 2) higher tax rate due to expenses disallowed for taxation purposes, partially offset by lower payout ratio of 58.6% (1QFY13: 61.8%). Qoq, earnings grew 30% on the back of lower payout ratio (4QFY13: 63.8%) and lower effective tax rate of 31.7% vs. 33% in 4QFY13.

Under the 4D Jackpot segment, Magnum remains the leader with YTD average sales of RM2.262m/draw, followed by BToto at RM2.016m/draw. Da Ma Cai is slowly picking up in terms of sales, standing at an average of RM1.10m/draw.

As for the 4D market, sales/draw for the quarter hit new low once again due to seasonality factors. 1QFY14 sales under 4D is usually the weakest among other quarters.

Risks

• Higher-than-expected prize payout ratio.
• Cannibalization from Magnum’s and PMP’s 4D Jackpot.
• Hike in pool betting duty/gaming tax.

Forecasts

Unchanged.

Rating

BUY

Positives – (1) 4D Jackpot shows signs of stabilization vs. decline in sales previously (2) Monopoly of lotto games; (3) Highest-yielding stock in the gaming sector.

Negatives – (1) Highly regulated industry; (2) Prize payout dependable on luck factor; and (3) listing of business trust dilutive to earnings and attracts holding company discount.

Valuation

No change to our RM4.64 TP based on SOP valuations. However, share price have dipped over the last quarter with current total return of >10%. Hence, we upgrade our recommendation to BUY from HOLD.

We advise investors to take the opportunity to accumulate at current price with potential special dividend of ~48-50 sen/share post listing of STM-Trust in Singapore.

Source: Hong Leong Investment Bank Research - 13 Sep 2013